Megastar Foods Settles Rs 20.15 Lakh Case with Sebi Over Disclosure Norm Violations

Megastar Foods has resolved a case with the Securities and Exchange Board of India (Sebi) concerning alleged disclosure norm violations by paying Rs 20.15 lakh in settlement charges. The company opted to settle the proceedings without admitting or denying any allegations. This decision was confirmed by Sebi's adjudicating officer, Amit Kapoor, on January 2.

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The issue arose when Sebi initiated proceedings against Megastar Foods, a publicly listed company, for allegedly breaching Listing Obligation and Disclosure Requirements (LODR) regulations. A show cause notice (SCN) was issued to the company on May 13, 2024. The notice claimed that Megastar Foods failed to obtain prior shareholder approval for related party transactions (RPTs) with Ganesh Flour Mills.

Settlement Terms and Regulatory Compliance

Initially, the audit committee approved a transaction worth Rs 15 crore on May 30, 2023, which was later increased to Rs 25 crore on November 11, 2022. However, shareholder approval was only secured after the fact through a postal ballot on July 7, 2023. This approval came following its inclusion in the company's FY23 annual secretarial report.

Sebi also pointed out that Megastar Foods' RPT policy lacked prior shareholder approval for material RPTs. Instead, it allowed for approvals after the fact. The policy had not been updated to comply with rules requiring prior shareholder consent effective from April 1, 2022. This failure to update its RPT policy was another concern raised by Sebi.

Resolution and Settlement Confirmation

Following the receipt of the SCN, Megastar Foods submitted revised settlement terms and paid the settlement amount of Rs 20.15 lakh. Sebi confirmed this payment and subsequently settled the matter. The adjudication proceedings initiated against Megastar Foods were thus concluded in accordance with the settlement regulations.

This resolution highlights the importance of adhering to regulatory requirements for listed companies. Ensuring compliance with disclosure norms is crucial to maintaining transparency and trust in capital markets.